[doctrine]

This is technically not a bear market for the S&P 500 or TSX, just correction territory. It is a clear bear for the NASDAQ - ouch, down 26%. ARKK is down almost 70%, which is a dot-com era blowout. Tech investors could have a rough decade ahead.

It's not even a -10% correction for energy, even after a 7% drop today.

This could be the early stages of a wider bear market though, maybe just a necessary once-every-2 to 3 year bear. Quite healthy. There is enough nonsense stocks out there. Nice to see Bitcoin showing its true colors too.

 

[doctrine]

Markets are just barely hanging on. The longer the S&P 500 hangs out just above the 20% bear market line, the more likely it breaks.

Of course who knows what will happen, but based on where we are today, I would say markets are indicating we are near or already in a minor recession. Which is not surprising - energy prices and interest rates must rise enough to stop people from using diesel and gasoline, because there isn't enough of it to go around.

 

[doctrine]

The last two weeks, markets were optimistic that the policy rate would settle lower than expected. Today was a big unwind of that expectation. Growth has to slow or reverse enough to allow people to adjust to higher cost of living driven by energy prices. Because there is zero new investment in lowering energy costs and the cost of living. If anything, new energy projects are going to be amongst the most expensive in history. I suspect after 12-18 months of misery, there may be enough political unrest and/or turnover to begin the process of starting up the "old economy".

 

[doctrine]

I believe the RE story as it is today will have a great reset, i.e. reversion to the mean, in some form. Either flat lining for years, or with a major correction. Mortgage rates are not returning to what they were just a year ago.

Real estate is destined for a bear market and a buyers market. The music stopped in March almost instantly. There are houses listed in early March that had 10+ offers and sold in hours, and there are houses listed in mid-March that are still on the market today. Mortgages rates are firmly at 5% or higher. The odds of a variable rate today at 3.3% being above 5% by the end of the year are extremely high. Houses will sell if priced lower but there is a lot of denial by homeowners who want to "cash out big" and are over-pricing and not negotiating - those days are long gone. If I was buying today, I would have a ton of selection and negotiating power, and especially for houses above the median price.

 

[doctrine]

I will do the same if they can do it without causing mass unemployment and a major recession.

We are talking about the same group of people that have been consistently wrong, month after month, for over 2 years now? "We will keep interest rates low for a long, long time." As recently as a few months ago, they were predicting inflation would be normal by March of next year and now they are already talking about 2024.

 

[doctrine]

But let's remember the wildcard here, which is inflation. At some point, inflation is going to subside, and when that happens, the central banks will end their tightening. There is absolutely no way to predict the timing on this, which is why I'm not attempting to trade in and out of my long-term positions.

This is known as the "pivot" or perhaps even "The Pivot". It will inevitably occur, just as inflation will inevitably subside, but it is less clear under what circumstances each of those occur. Energy inflation is rampant and getting worse everywhere, and the only reaction is for governments to fiscally subsidize through debt and money printing. This is just causing more predictable increases in just about every energy cost imaginable as demand stays high, and there isn't actually more energy out there because of restrictions by those same governments on energy supply. So it is just driving prices higher and higher. To me it is clear we are on this path for a little while longer because there is no action to undo what is occurring, only actions to make it worse.

Assuming no supply response which hasn't started and takes 5 years anyway (OPEC might even cut, imagine that), the only inevitable outcome is interest rates have to go so high that governments cannot afford to subsidize energy anymore and so stop money printing and allow demand to stop, or even reverse. That is a lot higher than the 2-3% rates we have now.

 

[doctrine]

You increase supply to meet the demand.

This is the solution, unfortunately though, there is no new supply of most things. Energy is the start, because once energy becomes expensive, it becomes uneconomic to make many things, and this has already started in many places.

Energy has been structurally cheap for four decades. The world's supply is hanging on a very thin balance at the moment.

 

[doctrine]

Markets only slightly above June lows. New yearly lows could create more panic. I expect more panic because the Fed is showing no signs of relenting. Certainly, they are forcing major recessions and economic damage. I am quite confident cuts will happen again eventually. They are just breaking the economy so much. But I am not prepared to go into that trade just yet. Fed banks seem intent on causing more havoc. Don't fight the fed and all that.

 

[doctrine]

Bear market is back on!

It's certainly not good out there, but I typically don't 'renew' the bear market until a new low is made. We are hovering about +1% above the 30 Sep lows even though the market is doing its best to get there in the last hour of trading today. Making a new bear low is significant, but not making a new bear low can also be interesting. Sooner or later, a new low won't be made.

 

[doctrine]

My bet is another ugly year for the economy. The question is when will the market hit bottom, and that is much harder to predict. My hope is a huge correction so I can load up.

Predicting is hard. It is interesting to note, however, that virtually all markets worldwide are out of bear market territory, as defined by 20% below their all time peaks reached in the last 12-16 months. This includes Canada, US, developed, and emerging markets. The only major equity market in bear territory is the NASDAQ, i.e. technology. This definitely is no longer a bear market to me. Commodities are very widely in bear markets, which can be very positive for economic growth (i.e. cheap inputs).

As markets are forward looking, I see markets today as anticipating no to low growth over the next year, but hardly a worldwide recession. Whether or not you believe that and wish to take action, would probably require a change in that forecast. If you are holding out for a correction, then you probably should be expecting economic conditions to worsen beyond what is already envisioned.